If you trade in Futures and Options (F&O), your income tax return (ITR) filing process is different from that for investors in shares, mutual funds, or exchange-traded
funds (ETFs). Under the Income Tax Act, earnings from F&O transactions are treated as non-speculative business income rather than capital gains. As a result, such income must be disclosed under the "Profits and Gains from Business or Profession" head while filing your return. Tax professionals say F&O traders should carefully choose the correct ITR form, accurately calculate turnover and ensure all required disclosures are made to avoid errors during filing. The applicable ITR form depends on the taxpayer's method of reporting business income. Individuals engaged in F&O trading are typically required to file ITR-3 if they maintain regular books of accounts. Those who qualify for and choose the presumptive taxation scheme under Section 44AD can instead file ITR-4. Regardless of how often a person trades, income earned from F&O transactions is treated as non-speculative business income under the Income Tax Act. For Assessment Year (AY) 2026-27, taxpayers who are not subject to a tax audit must file their returns by August 31, 2026, while those requiring an audit have until October 31, 2026. New ITR-3 Disclosure Fields for F&O Transactions The Income Tax Department has introduced dedicated reporting fields in the ITR forms for AY 2026-27, making it easier to separately disclose derivatives-related transactions. The revised ITR-3 includes:
- Field 12c: Dedicated for reporting F&O turnover.
- Field 12d: For reporting F&O income transferred to the Profit & Loss account.
Steps To Report F&O Income In Your Tax Return
Experts recommend maintaining proper documentation before filing your return.
- Collect annual brokerage statements, contract notes, trading ledgers and Profit & Loss statements.
- Compare these records with the Annual Information Statement (AIS) and other tax documents to identify discrepancies.
- Compute F&O turnover and arrive at the net business profit or loss.
- Include eligible business expenses such as brokerage, exchange charges, internet bills and trading software subscription costs.
- Report the final profit or loss under the business income schedule while completing the F&O-specific disclosures.
Understanding F&O Turnover Calculation
Experts stress that F&O turnover should not be confused with the total value of contracts traded.
Shanker explained that turnover is generally determined by:
- Adding the absolute value of profits and losses from all derivative trades.
- Including premium received on options sold.
- Accounting for certain differences arising from reverse trades wherever applicable, in line with ICAI guidance.
Tax Audit Rules And Carry Forward Of Losses
A tax audit involves an examination of a taxpayer's books of accounts by a Chartered Accountant to ensure compliance with income tax provisions.
On the treatment of losses, Shanker pointed out that:
- F&O losses can be adjusted against any business income in the same financial year.
- Any unabsorbed losses can be carried forward for up to eight assessment years.
- The return must be filed within the prescribed due date to retain the benefit of carrying forward losses.
